More than 60% of investors fear running out of money more than they fear death, Aite Group found in a study assessing independent advisers’ position on guaranteed income as a unique asset class. The study, “The Missed Opportunity: Guaranteed Income as an Asset Class,” was sponsored by NFP Advisor Services Group, and examined advisers’ present and potential uses of guaranteed income products, as well as the gap between consumer demand and adviser utilization.
Consumers have expressed growing interest, and academic research indicates that income guarantees deliver higher returns and reduce shortfall income risk levels while addressing sequence of return, investment and longevity risk factors for clients.
Yet financial advisers affiliated with a registered independent adviser (RIA) recommend guarantees only 49% of the time, and financial advisers affiliated with an independent broker/dealer recommend them only 69% of the time when clients are facing longevity risks.
The appeal and practicality of guaranteed income investments is rising, according to James Poer, president of NFP Advisor Services Group. “To attract and retain clients, advisers must keep up with the dynamic, ever-changing investment environment,” Poer said. “One of our goals is to be at the forefront of that change, providing advisers with unique insights and innovative solutions to help them stay ahead of the curve with their clients.”
Retirement income portfolios exist for a reason: to provide income over a lifetime, the survey pointed out, which can strain many portfolios lasting more than 30 years. Uncertainty, rising medical costs and sequence-of-risk returns require advisers to be open to exploring solutions in the clients’ best interests. Guaranteed income solutions represent a missed opportunity and deserve serious consideration from advisers.
Highlights of the survey include:
- Almost half of all U.S. households (48%) show interest in products that provide guaranteed income for life, and investors are willing to accept a low rate of return in exchange for the protection such a product offers.
- In 2010, 48% of households represented $10 trillion in total financial assets—37% of total U.S. households’ financial assets.
- Survey respondents said they were willing to pay between 4% and 6 % of assets to guarantee they wouldn’t run out of money in retirement.
- About two thirds of independent advisers surveyed (65%) recommend guaranteed income solutions to pre-retiree clients facing longevity risks.
- About half the independent advisers surveyed (55%) said they regard guaranteed income as a specific asset class.
Academic research cited in the survey demonstrates that income guarantees have delivered higher returns and reduced shortfall income risk levels while addressing client risk factors such as sequence-of-return, investment and longevity.
Adding a guaranteed income component to conservative, moderately conservative, and moderate portfolios is beneficial—it increases the average sustainable income and decreases shortfall income risk, the study found.
The study, commissioned by NFP Advisor Services Group, and produced by the independent research firm Aite Group, included perspectives from investors, independent advisers and finance executives. The data has a 5-point margin of error at the 90% level of confidence.
View the complete results of “The Missed Opportunity: Guaranteed Income as an Asset Class” here.